Credit forms an integral part of your financial credentials. It can impact both – your ability to get a loan as well as the cost of borrowing. This is why there’s so much emphasis on maintaining good credit. If you’re not sure where or how to start, these FAQs about building credit will help.

I’m just starting out, what is the best way to start building credit?

The best way to start building credit is with a credit card. However, getting approved for a credit card without credit is difficult. The easiest first step is to get a secured credit card. This requires you to make a cash security deposit in your bank. The bank then issues you a secured credit card against this deposit. You don’t have to go through any approval process. Approval is essentially guaranteed. The cash deposit you’ve made becomes your credit limit.

When using a secured credit card to build credit, it’s important that all payments must be made before the due date. Making on time payments every single month is the critical to building credit with a secured card.

Can I build credit as an authorized user?

Yes, you can build credit as an authorized user. To do this, ask a family member or friend to add you as an authorized user on their credit card account. You’ll get a separate card that you can use to make purchases. The joint card activity is reported to the credit agencies, and is recorded on both credit reports. This allows you to build credit without a card of your own.

Two main things to remember if you chose the authorized user to build credit. Make sure the primary cardholder is meticulous about making payments on time. Late payments will do your credit more harm than good. Secondly, you must ask the issuer to report the card activity for both, the primary cardholder and the authorized user. If it’s not reported to your credit account, you won’t get the credit-building benefits of being an authorized user.

Do I absolutely need to have a credit card to build credit?

Credit cards are the easiest way to start building credit but they’re not the only way. Making your student loan payments on time every month is just as effective for the purpose of building credit. On time payments on both, credit cards and loans, are counted towards your credit score. If you have student or any other types of loans, focus on making the payments on time to build credit.

How many credit cards do I need to build credit?

There is no one correct answer that’s right for everyone. Basically, you need just one credit card to build credit. This could be in the form of a regular credit card, a secured card, or as an authorized user on another person’s card. You can build good credit with just one card as long as you pay the outstanding on time, every time. The number of cards you own is not nearly as important as your on-time payment history.

Will too many cards hurt my credit?

No, they won’t as long as you pay off your bills on time. However, having more cards does increase the risk of overspending and getting too much into debt. If you can’t afford to pay off the multiple cards by their due dates, it can drag down your score. If you decide to get more than one card to build credit, you’ve have to be disciplined in your approach to using them. This is in terms of spending as well as paying them off.

What are the things I need to be careful about when building credit?

There are five main factors that impact your credit – payment history, credit utilization, credit age, types of credit, and credit inquiries. Being careful about these five factors will help you build credit faster while minimizing potential damage:

Payment history – Making all loan and credit card payments on time every time will keep your credit in good standing.

Credit utilization – Try not to max out your credit cards regularly. Use your cards judiciously and make sure to pay them off before the due date.

Credit age – The longer the age of your credit history, the better. Keeping old cards open can help lengthen your credit history and boost your credit.

Types of credit – Having a mix of revolving and installment credit is good. Be careful not to incur more debt just for the sake of diversifying your portfolio. This factor has a minimal impact on your credit.

Credit inquiries – If you need to apply for a loan or credit card, do your research before submitting an application. Every loan or credit card application triggers a hard inquiry which will pull your score down by a few points. One inquiry may not do significant damage but multiple inquiries will.

Will checking my own credit report hurt my credit score?

No, it won’t. By law, you are entitled to receive a free copy of your credit report annually from each of the credit bureaus. You can request additional copies if your loan or credit card application was turned down due to poor credit. These will not affect your credit score.

Does negative information stay on my credit history forever?

No, negative information doesn’t stay on your credit history forever. All negative information has a finite duration.  Missed payments will appear on your report for up to 7 years. The impact of this negative information gets progressively weaker with the years. Bankruptcy also stays on your report for 7 years. If you do have any negative report on your history, the important thing is to focus on repairing and rebuilding your credit. It takes time but it can be done by focusing on timely payments, keeping your credit utilization low and limiting the number of credit inquiries.